27 | Sunday Sift
Elon, Twitter, Dell, and Take-Private Transactions.
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Musk Takes Twitter Private
Elon Musk is no stranger to splashy newsfeed headlines. Six days ago, he cannonballed off the high dive.
Musk offered to buy Twitter for $44 billion to take the company private. The implications of the transaction are massive. Many are excited, many are upset, and everyone is curious.
I'm extremely curious and will distill my thoughts in a detailed post at some point once the rhetoric shifts from opinion/emotion to facts/results. For now, we are still in the early days, and no one knows what will happen.
Today, I'll spare you another Elon headline in place of a case study detailing one of the most successful take-private transactions of the past decade.
Story: Michael Dell of Dell Technologies
Author: Trung Phan (@TrungTPhan)
TLDR; In 2013, Dell Inc was a struggling PC and hardware firm. CEO Michael Dell took it private in a $25 billion buyout and turned it into an IT infrastructure + cloud giant (re-listing as Dell Technologies in 2018).
The $4 billion that Dell put up in the deal is now worth $40 billion.
Full Story 👇
Bonus: Why Take Twitter Private?
(Every situation is different and filled with nuance)
If you run a public company, every decision you make has follow-on impacts reflected in public filings and judged in real-time by investors.
Unfortunately, a disconnect exists between short-term and long-term decisions.
For example, Twitter and other social media companies measure and closely track a metric called DAU ("daily active users") - a measure of the total number of users who log in and engage with the product daily.
One of Elon's stated initiatives is to remove "bots" (fake accounts) from the Twitter platform. Well, doing this would decrease DAU as accounts are shut down.
If Twitter remained a public company, these headline reductions in users would negatively impact the equity value as investors see users decreasing - implying the platform is not performing.
To illustrate how dramatic this decline can be, look at what happened to Meta (Facebook) when they announced quarterly earnings for the first time as a rebranded company in February 2022. For the first time in 18 years, DAU decreased - from 1.930 billion to 1.929 billion (1 million user decline).
This is what happened to the share price:
It is only fair to note the decline is due to more than the dip in DAU, but the decline illustrates the degree to which public companies are at the mercy of expectations and how this can impact decision-making.
On its surface, removing fake accounts seems to be a positive change for a better overall user experience; and happier users usually lead to growth in new users.
If you were the CEO of Twitter as a public company and ultimately responsible, what would you do? Would you remove bots and decrease DAU?
Remember what just happened to Meta...
The decision is extremely difficult. Deciding to remove bots would likely create a better user experience - a short-term and long-term benefit. But at what short-term cost?
Therein lies another potential drawback with public companies.
Leadership (C-Suite individuals) are often compensated based on their ability to increase shareholder value (i.e., increase the stock price).
These individuals typically have a short shelf life. If you don't perform, you will be replaced.
Incentive compensation structures for these C-Suite individuals often reward short-term results. If you can show strong financial performance from one quarter to the next, your stock price usually increases. Shareholders are happy, and management is paid well.
However, these short-term decision cycles can negatively affect long-term performance when layered on top of each other.
When you take a company private, you can think long term and better execute on long-term initiatives in the short term.
Social media companies are wrestling with several important issues right now.
While Elon continues to grab splashy headlines - cannonballing off the high dive. Social Media companies are like the pale, sunburned kid next to jump. No matter how great the cannonball splash, onlookers just see red.
No social media platform is perfect, but I'm extremely curious to see if Elon can make an important social media platform better.
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